I am a Professor of Economics at Texas Christian University, where I have worked since 1987. My areas of specialty are international economics (particularly exchange rates), macroeconomics, history of economics, and contemporary schools of thought. During my time in Fort Worth, I have served as department chair, Executive Director of the International Confederation of Associations for Pluralism in Economics, a member of the board of directors of the Association for Evolutionary Economics, and a member of the editorial boards of the American Review of Political Economy, the Critique of Political Economy, the Encyclopedia of Political Economy, the Journal of Economics Issues, and the Social Science Journal. My research consists of over thirty refereed publications, two edited volumes, and one book (with another in process). I have also been lucky enough to win a couple of teaching awards.
In terms of my approach to this blog, I am a firm believer that economics can and must be made understandable to the general public, but that our discipline has done a very poor job in this regard. This is particularly true of macro issues, where people quite naturally assume that their personal experiences are analogous to those at the national scale. Very often, this is not the case, with the result that politicians and voters (and some economists) press for policies whose effects are quite the opposite of what was intended. That this is problematic has never been more evident than today. I also try to steer as clear of politics as possible. I want to explain how things work, not what you should believe.
I have been married to my wife, Melanie, for over twenty-five years, and we have twin daughters (who have just started college) and a dog named Rommel (who has not). My favorite pastimes are online computer gaming and reading about WWII history.

The Coming Recession: How Fiscal Responsibility is Economic Suicide

My colleagues and I have been writing endlessly about the ignorance of reducing government spending in our current economic straits. Unemployment is stagnant at just under 8% and over 12 million Americans are looking for work–and the latter does not count discouraged workers, those taking jobs well below their skill level, or individuals accepting part-time work when they needed full-time (they add another 10 million or so; Bureau of Labor Statistics). Firms are understandably reluctant to expand operations in an environment where households are debt-ridden and the financial sector continues to be marked more by a desire to get rich quick than facilitate the production of goods and services. Faced with short- and long-term problems, we are far from out of the woods.

It is in this environment that members of both parties are falling over themselves to show how fiscally “responsible” they are. And we achieved this lofty goal in fourth quarter 2012 by reducing federal government spending by 15%. The result? Real GDP shrank by 0.1% (Bureau of Economic Analysis; consumers were able to keep this from being even worse due to a surge in spending on durables, something that is not sustainable because once you get your new big-screen TV for Christmas, you don’t buy another one for a while). This is a preliminary figure, but it contrasts sharply with third quarter growth of 3.1%. Not coincidentally, during that period federal government spending grew by 9.5%. We are primed for another recession.

The only thing wrong with the debt and deficit is that they are too small. We need to be increasing government spending, not reducing it. What in God’s name are our policy makers thinking? Why do they believe that, when we already have over 20 million Americans unemployed or underemployed, a laid off federal employee would suddenly find herself swamped with job offers? And how will those in the private sector replace the revenues that resulted from soldiers, Marines, park rangers, NASA scientists, postal employees, etc., shopping in their store? The short answer is, they won’t. As you cut federal spending, the economy–including the private sector–contracts, just as it would if you cut any other kind of spending.

Nor are we saving ourselves some sort of long-term cost by enduring this short-term pain. The US cannot possibly be forced to default on debt denominated in its own currency, it is only inflationary if we are already at full employment (no need to worry about that yet!), large deficits and debt do not cause higher interest rates (stop by your bank and check current CD rates), and government deficits create private sector surpluses. What is debt to Washington is a financial asset for you and me. Government spending stimulates the private sector and makes profitable the production of goods and services at otherwise idle factories.

This is not to say that there are not types of federal spending that are wasteful. Of course there are, but that’s a problem even if we are in surplus. And, controlling our politicians by creating unemployment hardly seems just or efficient.

All these fiscal cliffs, debt ceilings, and threats of sequester have us poised for disaster. For the Republicans, the party that has traditionally been the least worried about the debt and deficit, budget cuts appear to simply be a means of achieving their end of destroying programs they don’t like. The Democrats, on the other hand, don’t seem to have any ulterior motive–they’re just ignorant. They also desperately want to continue to use the Clinton surpluses (a result, not a cause, of the long 1990s expansion) as a means of marketing themselves as the responsible party.

But there is nothing responsible about raising unemployment. Our economy is very weak, and the last thing we need right now is to reduce yet another component of spending. The worst may be yet to come. To add insult to injury, it appears that it is going to be self-inflicted.

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Unless 8% unemployment is efficient–and the private sector created that–then I have to wonder what definition you are using. In addition, since government deficits=private sector surpluses, how does the former choke the latter.

Fortunately for my students, I work in the private sector and therefore am apparently pretty efficient!

Do you acknowledge that government deficits are equal to non-government surplus? It is important to understand how money enters the economy. As the issuer of our currency, how does the federal government actually “issue” it? Without a basic understanding of this process, this article will be difficult to follow and accept. You really have to leave the framework of thinking of our federal government as a household or state government both of which have to balance budgets. The federal government balances the economy by managing taxation and spending levels.

You would do better to BE one of his students. Every dollar spent (efficient or not) GOES to the private sector. The government doesnt pay itself. It pays salaries, benefits, contractors, etc. all of which go into the Private sector economy. Without government spending…there IS no private sector, at least not like the one you see today. My dollar spent is another persons dollar earned…if the government spends it, its still the same formula

What you are suggesting sounds right on the face of it; but it’s absolutely wrong IF THE ENTIRE ECONOMY IS OPERATING BELOW CAPACITY. Which it is. There can be no crowding out if the room is half empty. Government spending only “chokes” the private sector if there’s a fight for scarce capacity – that is NOT THE CASE in today’s depressed economy.

As Dr. Harvey points out, the economy shrank in the last quarter – because government spending shrank. This is the opposite of what you claim. And the quarter before, it grew – because government spending grew. Again, this is the opposite of what you claim.

These are facts. Try and address them, rather than resorting to content-free insults.

Every dollar spent by the “inefficient” federal government GETS SPENT into the private sector economy where the dollars circulate over and over and over again. This is an economic STIMULUS as long as the economy is operating below full capacity (low unemployment/maximum utilization of resources). Apparently you feel that government spending does not provide a direct benefit YOU. In actuality, it does benefit you as you are part of the overall macro economy. What you say might be true about the “efficient’ private sector if you believe the federal budget is constrained just like states, businesses or households. Your logic is flawed because our sovereign government issues its own currency. The government nurtures and supports the private sector. Conventional wisdom says its a zero sum game in which the government versus the private sector… a silly argument which is total nonsense.

The problem is that you paint the situation as having only one sensible analysis. Promoting consumer demand in the United States only results in jobs in China. The United States and Western Europe, where the “crisis” resides, operate a broken social model with an entitlement culture that has turned it’s back on productive employment in favor of valueless consumerism. 1989 was the collapse of the Soviet model. The 2010′s bring the bankruptcy of the western welfare state.